Manulife assesses fiscal space remains secure despite Indonesia maintaining fuel subsidies
Jakarta (ANTARA) - Manulife Asset Management Indonesia (MAMI) assesses that Indonesia’s fiscal space remains secure, despite the government’s decision to maintain fuel prices amid rising global oil prices.
Senior Portfolio Manager-Equity at MAMI, Rizki Ardhi, stated that the policy of keeping fuel prices steady has a positive impact on consumer purchasing power while helping to keep inflation under control.
“However, on the other hand, the consequence is an increase in the energy subsidy burden,” Rizki said in his statement in Jakarta on Wednesday.
He explained that assuming an average oil price of around 85 US dollars per barrel this year—or 21 per cent higher than the state budget assumption—the energy subsidy budget could increase by approximately Rp103 trillion, equivalent to 0.4 per cent of gross domestic product (GDP).
Nevertheless, this pressure can relatively be offset by efficiency measures and budget reallocations estimated at Rp259 trillion, so the fiscal space is deemed still sufficiently adequate.
Meanwhile, from a financial market perspective, Rizki views historical oil price surges as tending to have only temporary impacts, unless accompanied by broader macroeconomic pressures such as a global recession or aggressive monetary tightening.
“The impact of the conflict in the Middle East on Indonesia’s market outlook going forward very much depends on how quickly oil price and supply normalisation can occur,” he said.
Risks to the market would increase if supply disruptions last longer and trigger ongoing pressures such as a global recession or interest rate hikes.
Furthermore, Rizki explained that the impact of the geopolitical conflict in the Middle East on the global economy is largely determined by the conflict’s duration and the speed of energy distribution recovery.
If the disruptions are temporary, the impact is considered limited and can still be navigated by the global economy.
Conversely, prolonged escalation could potentially cause broader pressures, particularly on the energy sector.
He also highlighted the increasing risk of oil supply disruptions if strategic routes like the Strait of Hormuz are affected by the conflict, which could trigger a surge in global energy prices.
However, the latest projections from the Organisation for Economic Co-operation and Development (OECD) indicate that current global economic growth remains relatively stable.
On the other hand, rising oil prices could drive global inflation, particularly in energy and transportation components.
Nevertheless, core inflation is deemed relatively stable, so the pressure on central banks to pursue aggressive monetary tightening remains limited.
“This condition is important for central banks, because as long as medium-term inflation expectations remain under control, the pressure on global central banks to implement aggressive monetary tightening remains quite limited,” he clarified.